Retailers Find Little To Cheer

By MICHAEL BARBARO

Published: January 6, 2006

The nation's merchants, trotting out deep discounts before Christmas, lured enough last-minute buyers to deliver a decent, if unspectacular, sales gain of 3.2 percent in December.

The results, released yesterday, showed that retailers, like Target, that waited until closer to Christmas to flood shoppers with ads and markdowns had the strongest December.

If there is any lesson for retailers in the results, it is this: the early bird did not catch the worm.

Indeed, chains like Wal-Mart that focused on getting a jump-start on holiday sales before Thanksgiving instead fell behind last month.

Wal-Mart, in particular, ''had a competitive advantage in November which they suddenly lost in December, when other companies stepped up,'' said Bill Dreher, a retail analyst at Deutsche Bank Securities.

Wal-Mart's sales at stores open at least a year rose a meager 2.2 percent. Because of its size -- 10 percent of retail purchases are made there -- its performance dragged down the entire industry.

According to the International Council of Shopping Centers, consumers spent $93.2 billion at retailers in December, up from $90.3 billion a year ago. The 3.2 percent increase beat last year's 2.7 percent gain for December, but fell below a 4.3 percent rise in 2003.

''Not bad, kind of average,'' was the verdict from John D. Morris, a retail analyst at Harris Nesbitt.

But marketing tactics did not tell the whole story. With home heating costs rising, retailers that cater to lower- and middle-income shoppers, like Kohl's and Sears, turned in largely disappointing results. But higher-end chains, like Neiman Marcus and Nordstrom, with shoppers who are more insulated from energy prices, once again thrived.

A complete picture of the holiday season will not emerge until the end of January after millions of Americans redeem gift cards and retailers can then register them as sales.

What is more, monthly same-store sales, as they are called in the industry, do not factor in online sales. Web sales rose 25 percent this holiday season, to $18.1 billion, through Christmas, according to ComScore Networks. (Two of the nation's largest electronics retailers, Best Buy and Circuit City, will not report December sales until they announce annual earnings later this month.)

Wal-Mart's performance struck Wall Street as particularly sluggish, given the chain's considerable holiday marketing campaign, which included television commercials with Garth Brooks, $400 laptops and a pledge to match competitors' ''doorbuster'' prices on the day after Thanksgiving.

Analysts said Wal-Mart's early advertising blitz, which tapered off in December, left it vulnerable to competition in the final weeks of the season. Unrelenting negative publicity from union-backed groups like Wake Up Wal-Mart, which organized holiday protests in front of its stores, may have also hurt the chain.

''The 2004 holiday season revealed that Wal-Mart was no longer invincible,'' said Bernard Sosnick, an analyst at Oppenheimer. ''The 2005 holiday season did not erase that.''

After a strong showing in November, when sales rose 3.6 percent, J. C. Penney also had a rather weak December. Sales grew just 2.2 percent, below a 2.7 percent analyst forecast.

''It's a demographic problem,'' said Mr. Dreher, the Deutsche Bank analyst. ''If you were focused on the moderate-income sector, you were disappointed.''

Sears Holding, the struggling combination of Sears and K-Mart, failed to find its footing over the holidays, with December sales sliding 11.9 percent. K-Mart delivered a 1 percent sales increase after years of falling sales, suggesting the bulk of the company's troubles rests with Sears. In a statement, Sears Holding blamed a ''weaker-than-anticipated customer response to fashion offerings.''

Target, the trendy discount retailer whose typical shoppers earn far more than those at Wal-Mart, said sales rose 4.7 percent. That was a reversal from November, when Target's sales growth dipped below Wal-Mart's for the first time in two years.

Federated Department Stores -- still trying to integrate the weaker May Department Stores into its business -- also turned around during the holidays, posting a 3.4 percent sales increase in December after a 3.4 percent decline in November.

Luxury retailers returned to their generally strong growth last month after a sluggish November. Sales rose 8.6 percent at the Neiman Marcus Group, 7.7 percent at Nordstrom and 2.4 percent at Saks.

Fickle teenage shoppers, who fall in and out of love with retailers seemingly every season, mobbed stores that sold high-priced denim and faux-fur-trimmed coats, increasing sales for the segment by 12.9 percent, Retail Metrics found.

Sales at Abercrombie & Fitch, which shuns the deep markdowns used by its rivals, leapt 29 percent. Sales at its relatively new Hollister division, aimed at the middle-school set, jumped 36 percent.

But the cheery news was largely eclipsed by word from the Securities and Exchange Commission yesterday that it has begun a formal investigation into sales of Abercrombie's stock. The agency has requested information from the retailer and some current and former executives.

After a challenging fall, when it was stuck with piles of unsold denim, A?postale said sales rose 11.4 percent, far exceeding analysts' forecasts of a 4.4 percent gain.

Gap's hopes for a holiday turnaround, propelled by a return to the basic crew neck sweaters and knit scarves that endeared it to legions of consumers in the 1990's, did not materialize. Sales fell 9 percent across the chain: down 10 percent at Gap, 10 percent at Old Navy and 5 percent at Banana Republic.

Mr. Morris, the analyst, said Gap's decision to skip television ads for the Gap brand in favor of a colorful magazine insert hurt business. ''As much as the company said it did not drive big business, it became a ritual,'' he said. ''You saw it and kind of felt like it was time to go to the mall, and it just wasn't there.''